15 July, 2020
Singapore’s economy shrank 41.2 per cent in the second quarter compared with the first as the nation went into recession
Economists said that job losses and wage cuts are set to continue
The economic contraction in the second quarter is the most severe since the country's independence
SINGAPORE — The worst of Singapore’s economic contraction is probably over, but more job losses and wage cuts are to be expected, especially in the later part of 2020, economists said on Tuesday (July 14).
Figures released on Tuesday mean that Singapore's economy is officially in recession — though no expert doubted this was on the cards. This is after two consecutive quarters where economic output shrank when compared with the previous quarter.
The second quarter — the three months ending June 30 — contracted a record 41.2 per cent compared with the first quarter, following a 3.3 per cent quarter-on-quarter decline in the first quarter, flash estimates from the Ministry of Trade and Industry (MTI) showed.
[This was the height of the circuit breaker, with low economic activity as shops and restaurants/eateries were closed for dine-in. And people were asked to stay at home.]]
MTI also compared the quarterly figures with the same period a year earlier. On that basis, Singapore’s economy shrank 12.6 per cent in the second quarter. [Year on year.]
These eye-watering levels of contraction are the highest recorded since the country became independent and the economic fallout from the Covid-10 pandemic has been battering Singapore’s trade-reliant economy.
The second quarter had been widely expected to record a sharp drop in growth given that the circuit breaker period covered two of the quarter’s three months: April and May. This was when the economy came almost to a standstill with shops and offices closed to curb the spread of Covid-19.
Economists said that the economic contraction is likely to have reached its worst point in the second quarter, and it is set to claw its way back to recovery from the present third quarter onwards.
The economy is still expected to keep shrinking — only not as dramatically, they added.
Still, some said that they would not be surprised if the labour market continues weakening with retrenchments and wage cuts to continue or perhaps even increase over the next two quarters.
MTI's figures showed that the number of jobs, excluding those held by foreign domestic workers, fell by 25,600 in the first three months of this year — the biggest quarterly contraction on record.
Ms Selena Ling, head of treasury research and strategy at OCBC bank, said that the real test of Singapore’s labour market will be seen only in the fourth quarter of 2020 or the start of next year.
This is because most of the government subsidies introduced to ease the economic fallout of Covid-19 would have stopped during the third quarter.
The last payout of government wage subsidies, known as the Job Support Scheme, will be in October this year.
The rental waiver for small- and medium-sized businesses will also end in July.
Senior economist Irvin Seah of DBS bank said: “(The government support measures) prevented a much bigger fallout in the labour market.
[Prevented? Or Delayed? Most of the interventions were simply delaying actions, hoping that the crisis is a temporary or transient crisis that would reverse quickly. This is not wrong. Not knowing how quickly or widely it would spread, the only reference point would have been the SARS episode. And that resolved itself quickly. This is more persistent, and it was hard to imagine how much life would have to change to adapt to Covid19.]
“Despite the fairly benign job losses figure in the first quarter, I think the second quarter and going forward, we will see sharp deteriorations in the labour market.”
Mr Seah added that significant falls in income are to be expected as some companies, while stopping short of laying off workers, have required them to go on no-pay leave or have cut their salaries.
He explained that companies typically tend to be more cautious in hiring even though growth has picked up, because they want to be certain that their revenue stream is on a steady path first before adding to the manpower headcount.
This contributes to what economists call the lag effect of the labour market.
Mr Brian Tan, an economist from Barclays Bank, said that consumer demand would likely not return to levels before Covid-19 despite moves to open up the economy gradually.
Restaurants, for example, are still not allowed to operate at full capacity due to safe-distancing measures.
“Companies need to assess what is the right level of staffing and costs they need to bear to operate in an optimal manner in the next six to 12 months,” he said.
Another worry is that consumers are not going out to spend.
Ms Ling noted that some overseas jurisdictions such as Hong Kong have had to roll back some of their measures to open up the economy as more Covid-19 outbreaks emerged.
She noted that some Singaporeans may be concerned over a potential second wave of infections, given the higher number of Covid-19 community cases as the authorities continue to ease restrictions in the second phase of its circuit-breaker exit.
Ms Ling of OCBC questioned whether the momentum from the pent-up consumer demand that was observed when Singapore exited from the circuit breaker would continue.
The “novelty value” of some retail and other outlets reopening is now gone and people are becoming more cautious, she said.
To prevent greater fallout in the labour market, Mr Seah suggested that some of the government support measures should be extended, but only to sectors that are hit particularly hard by the pandemic.